Roku’s Business Model Explained
And why its spat with Google is a major problem
As an investor, you get used to looking down on hardware companies. Hardware tends to be easy to replicate and substitute — in MBA speak, if all you do is hardware you lack barriers to entry and are at risk of commoditization. This means the second that other companies notice you making some sweet profits, they will come in and try to steal your lunch. In the end, it will likely result in lowered prices (and minimal profits) for all.
So how does Roku manage the competitive landscape of streaming TV hardware? After all, there are a lot of players in this space ranging from giants (Google’s Chromecast, Amazon’s Fire TV, and Apple TV) to smaller but differentiated competitors (Sony Playstation). But in the midst of all this, Roku has done well enough to earn itself a $37 billion market cap.
Table Stakes
Its strategy is multi-pronged. First, there’s a razor and blade approach to selling streaming hardware and building a large installed base of active users. To do this, Roku tries to offer the best combination of value and user experience across the widest range of…
